Does
the pay stub show FICA (social security and medicare ) tax witholding? That is,
is your above the table pay being treated as an employee or a contractor?
Employees will get a W-2. Contractors get a 1099-Misc.
The IRS considers undocumented cash income (no W-2 or 1099-MISC), for work
performed, to be self employment income. Enter at "Business Income &
Expenses" and TurboTax (TT) will complete Schedule C or C-EZ for you and
allow you to deduct any expenses associated with this income. You'll also have
to pay self employment tax (social security & medicare) on any profits greater than $400. You
report the income from your own records. Depositing the cash is a good idea.
If your above the table pay is reported on a 1099-Misc, that pay and your
tips will go on the same Schedule C as the under the table pay. In TurboTax,
you will start by entering the 1099-Misc first.
If you get a W-2, the TT interview will include a question about tips. Tips
will be entered there, instead of Schedule C and will end up on line 7 of form 1040 with your wages. Form 4919 will be prepared to pay FICA tax on the tips. FICA tax on tips on line 7 is taxed at half the rate as tips on schedule C
